Mumbai, Aug 21 (KNN) A Reserve Bank of India committee has proposed that urban co-operative banks (UCBs) with a business size of Rs 20,000 crore and above may be allowed to convert itself into a commercial bank and UCBs below Rs 20,000 crore to small finance banks.
 
“A business size of Rs 20,000 crore or more may be the threshold limit beyond which a UCB may be expected to convert itself into a commercial bank. The conversion need not be de jure compulsory,” the high-powered RBI committee headed by deputy governor R Gandhi said.
 
However, the types of businesses to be undertaken by those choosing not to convert may remain within the limits of plain vanilla products and services and hence, growth will be at a much slower pace.
 
“Their expansion in terms of branches, area of operations and business lines may thus be carefully calibrated,” it said.
 
“Smaller UCBs with business size of less than Rs 20,000 crore willing to convert to small finance banks can apply to the Reserve Bank for conversion provided they fulfil all the eligibility criteria and selection processes prescribed by the Reserve Bank and further provided that the licensing window for finance banks is open,” the panel said.
 
According to the panel, licenses may be issued to financially sound and well-managed co-operative credit societies having a minimum track record of 5 years which satisfy the regulatory prescriptions set by the Reserve Bank.
 
“For providing banking access in unbanked areas, the RBI may put in place an appropriate set of incentives for existing banks to open branches there,” it said.
 
It said putting in place a BoM as suggested by the Malegam Committee has to be one of the mandatory licensing conditions. The panel also proposed entry point norms for co-operative banks: Rs 100 crore capital to operate as a multi-state urban co-operative bank, Rs 50 crore capital for UCB beyond two districts and as a state level UCB and Rs 25 crore capital for district level UCBs (up to 2 districts). In the case of conversion of co-operative credit societies in unbanked areas and in the north-east, suitable relaxation may be made by the Reserve Bank, it said.
 
Further, in comparison with Small Finance Banks (SFBs), the Committee said, “RBI issued guidelines for licensing of Small Finance Banks (SFBs) in the private sector on November 27, 2014 with the objective of furthering financial inclusion by (i) provision of savings vehicles primarily to unserved and underserved sections of the population, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other entities in the unorganised sector, through high technology-low cost operations.”
 
A minimum paid-up-capital of Rs 100 crore has been prescribed for SFB with a minimum regulatory CRAR of 15 per cent. Further, 75 per cent of their assessed net bank credit (ANBC) will go towards priority sector lending and 50 per cent of the loan portfolio will constitute loans upto Rs 25.00 lakh.
 
The single and group borrower exposure limit has been fixed at 10 per cent and 15 per cent of their capital funds respectively.
 
These regulatory prescriptions are more stringent than that for UCBs. The minimum entry capital for setting up a uni-state UCB in a metropolitan city has been fixed at Rs 5.00 crore, the minimum regulatory CRAR at 9 per cent, priority sector lending constitutes 40 per cent of ANBC and single and group borrower exposure limits have been fixed at 15 per cent and 40 per cent of capital funds respectively without any monetary ceiling, the Committee said. (KNN Bureau)